FedEx Delivers An Empty Guarantee and Its Brilliant!

Author:
Luke Kupersmith
|
January 23, 2019

FedEx Delivers An Empty Guarantee and Its Brilliant!

Author:
Luke Kupersmith
|
January 23, 2019

FedEx business customers spending around $60,000 or more annually can expect to see a waiver of their “Money Back Guarantee” in their next FedEx Agreement revision, assuming a waiver isn’t already there. A waiver of the FedEx Money Back Guarantee eliminates a customer’s right to a refund when FedEx fails to meet their time in transit commitment (aka guarantee).

UPS and FedEx have been “selling” their customers on service waivers (in UPS-land it’s called a GSR Waiver) for many years, but FedEx has struck out with renewed vigor to ‘have their cake and eat it too.’ By default, they are now including service waivers in new/renewed customer agreements, sometimes unbeknownst to the shipper. Amazingly, in many cases they are getting away with it.

In the world of small parcel shipping, service level guarantees are paramount. Whether a business elects to send a shipment to their customer via an expedited service or ground service, the expectation is that the shipment be delivered on-time, according to the carrier’s delivery commitment for the service level selected.

On the sales & marketing side of things, FedEx (and UPS) tout their high service level performance and go so far as to back it up with an actual guarantee. In a nutshell their guarantee states that business customers have a right to a refund (transportation charge only) if the service level commitment isn’t met…but, only if the customer notices and then asks for a refund. On the front end, these guarantees help the carriers sell new business, keep existing business and justify the ever-increasing prices they charge.

It seems likely that FedEx’s extra effort to preclude themselves from responsibility to fulfill their money back guarantee has to do with the increasing number of their customers who are actually taking them up on the money back offer. Over the past 5 – 10 years there has certainly been a notable increase in the number of parcel audit companies, a space that we, Lojistic, have operated in for a decade and a half. Naturally, FedEx (and UPS) are looking for ways to maintain the perceived value of their service guarantees while simultaneously minimizing the financial impact of such.

When a service guarantee is eliminated for a particular company, as FedEx is now doing by default for all high-volume shippers, they have brilliantly delivered an empty guarantee.

Whereas a primary accountability mechanic is taken from customers of FedEx & UPS when they agree to a service guarantee waiver, by no means does the carrier intentionally alter their performance for those individual customers. Their massive fulfillment networks are not individually treating “waiver” customers differently than everybody else. Over time, however, there is a creeping slip to service that is enabled. At some point those who have waived their right to service guarantees become the majority. Maybe that’s already the case. It eventually becomes a challenging predicament for the carriers to focus money correcting on-time performance flaws or to instead pocket the extra profit. One could argue that market competition will be the accountability mechanic, but it’s pretty obvious that there is an absence of healthy competition in the small parcel carrier space.

It’s all going to shake out one way or another. In the meantime, I wish you well my shipper friends. FedEx, you’re brilliant. Have that cake… and eat it too.